SHOULD YOU PAY OFF YOUR MORTGAGE WHEN YOU RETIRE?

It's a question of the math as well as your peace of mind.

- BY SANDRA BLOCK

NEW retirees face a host of choices. Where's the best place to volunteer?

Is this a good time to launch a side hustle? Should I adopt a rescue dog? But a growing number of retirees are contemplating a more consequential decision: whether they should pay off their mortgage.

More than 40% of homeowners ages 65 to 79 have a mortgage on their primary residence, up from 24% in 1989, according to a 2022 survey by Harvard University's Joint Center for Housing. During this period, the median mortgage debt rose from $21,000 to $110,000 (both of those figures are in 2022 dollars). The median monthly mortgage payment for older adults was $1,470 in 2022, according to the study.

That's a significant monthly expense, and eliminating it frees up money for other expenses.

In the past, retiring with a paid-off mortgage was a smart and worthwhile goal. If your interest rate was 6% or higher, for example, paying off your mortgage provided significant savings on interest. But many current retirees—and near-retirees—took out mortgages or refinanced existing loans in 2020 and 2021, when average rates on 30-year fixed-rate mortgages fell as low as 2.7%.

Meanwhile, a series of increases in short-term interest rates launched by the Federal Reserve in March 2022 boosted the return savers could earn on money market funds and bank savings accounts. Although the Fed has paused rate hikes—and made cuts totaling one percentage point in 2024—you can still earn 4% or more in a high-yield bank savings account. That means retirees could come out ahead by keeping their low-interest mortgage and investing the money they would otherwise use to pay it off. And as counterintuitive as it may sound, paying off your mortgage could increase the risk that you'll run out of money in your later years.